How to Distribute a Decedent's IRA
- 1). Locate and identify all beneficiaries. If the beneficiary is a surviving spouse, she may choose to be treated as the account owner, rather than a beneficiary. In this case, the account is retitled in the spouse's name, and mandatory distributions are calculated as if the account were her own---in other words, if she is under the age of 70-1/2, she is not required to being minimum distributions, regardless of the original account owner's age. If the beneficiary is a non-spouse individual or a trust, distributions must begin immediately, based on varying schedules.
- 2). Calculate the required minimum distributions. For a non-spouse beneficiary, if the owner had begun RMDs, the beneficiary must continue taking distributions based on his or the decedent's life expectancy, whichever is longer. If the decedent had not yet begun distributions, the beneficiary must withdraw based on his own life expectancy, using IRS tables. If there is more than one non-spouse beneficiary, and the decedent's account is not split into separate beneficiary accounts, the life expectancy of the oldest is used to calculate required distributions for all beneficiaries; otherwise, the life expectancy of the individual beneficiary owner is used. Non-spouse beneficiaries also can withdraw all of the IRA within 5 years, which is the requirement for non-individual beneficiaries, such as trusts. Any beneficiary, whether spousal, non-spousal, or non-individual, can withdraw the complete account balance at any time.
- 3). Don't forget taxes. Because an IRA is funded with pretax money, all distributions are taxable, even payments to beneficiaries. Thus, though a beneficiary may want rapid access to the funds in an inherited IRA, a lump-sum distribution may result in a higher tax bill than would taking distributions over time. The IRS does waive the 10 percent early withdrawal penalty for beneficiaries under the age of 59 1/2.
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